U.S. crude oil weakened sharply at the beginning of the Asian market on Thursday (June 2), falling more than 3% to a new low of more than a week to $111.64 per barrel as of 08:48, mainly because of reports that Saudi Arabia will increase oil supply if Russian production falls. This has greatly eased crude oil market concerns about tight supply, and the likelihood of a top near the 120 integer mark has now increased significantly, with further downside risk to oil prices in the short term. The dollar index is currently hovering near a more than one-week high. The dollar rose 0.77% overnight, hitting a new intraday high of more than a week to 102.73, thanks to upbeat U.S. economic data and very hawkish speeches from several Federal Reserve officials. Gold prices recovered from a two-week low on Wednesday, with spot gold hitting a high of $1849.88/oz and closing at $1846.20/oz. Gold prices are currently trading near $1847.58. Investors need to beware of the double negative impact of a stronger dollar and lower oil prices on gold prices.
Oil prices settled slightly higher on Wednesday after EU leaders agreed to a phased ban on imports of Russian oil, while the end of the new crown epidemic seal in Shanghai, Asia, which could boost already tight market demand. Crude oil contracts have been steadily higher for weeks due to reduced Russian exports as a result of EU and U.S. sanctions and limited purchases of Russian crude by India and China. Russia is the world's largest exporter of crude oil and fuel.
Brent crude futures closed at $116.29 a barrel, up $0.69, or 0.6 percent, while U.S. crude futures closed at $115.26 a barrel, up $0.59, or 0.5 percent.
On Monday, EU leaders agreed in principle to cut Russian oil imports by 90 percent by the end of the year, the toughest EU sanctions since Russia's invasion of Ukraine. "The impact of the sanctions going into effect is huge," said Bill Farren-Price, head of Enverus in London, "If their target for sanctions is basically met, Russia's (exports) will be reduced by about 3 million barrels a day, and not all of that oil can be resold to other places, so the impact is pretty dramatic." Sanctions on Russian crude oil will be phased in over six months, and sanctions on refined products will be phased in over eight months. The ban exempts Russia's pipeline oil exports as a concession to Hungary and two other landlocked Central European countries.
Four OPEC+ sources from the Organization of the Petroleum Exporting Countries (OPEC) and its allies told Reuters that the idea of suspending Russia's participation in the oil supply deal was not discussed at a technical committee meeting held on Wednesday.
However, international oil prices were shockingly weak on Thursday, with U.S. crude once falling more than 3 percent to a new low of more than a week to $111.64 per barrel, amid reports that Saudi Arabia would increase oil supplies if Russian output fell. Market concerns about tight supply cooled and the likelihood of a short term technical top near the 120 handle increased.
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